BUSTOS v. MILLIANS SHOE, INC.

JOSELITO HERNAND M. BUSTOS, Petitioners VS. MILLIANS SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, and the REGISTER OF DEEDS OF MARIKINA CITY, Respondents

G.R. No. 185024

April 4, 2017

FACTS:

Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate of Title (TCT) No. N-126668. On 6 January 2004, the City Government of Marikina levied the property for non-payment of real estate taxes. Petitioner then applied for the cancellation of TCT of the property. Marikina City RTC, rendered a final and executory Decision ordering the cancellation of the previous title and the issuance of a new one under the name of petitioner.

On 26 September 2006, petitioner moved for the exclusion of the subject property from the Stay Order. He claimed that the lot belonged to Spouses Cruz who were mere stockholders and officers of MSL He further argued that since he had won the bidding of the property before the annotation of the title, the auctioned property could no longer be part of the Stay Order. The RTC denied the entreaty of petitioner. It ruled that because the period of redemption hadnot yet lapsed at the time of the issuance of the Stay Order, the ownership thereof had not yet been transferred to petitioner.

Petitioner moved for reconsideration, but to no avail. He then filed an action for certiorari before the CA. He asserted that the Stay Order undermined the taxing powers of the local government unit. He also reiterated his arguments that Spouses Cruz owned the property, and that the lot had already been auctioned to him.

The said parcel of land which secured several mortgage liens for the account of MSI remains to be an asset of the Cruz Spouses, who are the stockholders and officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a close corporation, the stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e. personally liable for corporate debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and obligations. Petitioner unsuccessfully moved for reconsideration. The CA maintained its ruling and even held that his prayer to exclude the property was time-barred by the 10-day reglementary period to oppose rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation Before this Court, petitioner maintains three points: (1) the Spouses Cruz are not liable for the debts of MSI; (2) the Stay Order undermines the taxing power of Marikina City; and (3) the time bar rule does not apply to him, because he is not a creditor of MSI. 12 In their Comment, 13 respondents do not contest that Spouses Cruz own the subject property. Rather, respondents assert that as stockholders and officers of a close corporation, they are personally liable for its debts and obligations. Furthermore, they argue that since the Rehabilitation Plan of MSI has been approved, petitioner can no longer assail the same.

ISSUE:

Whether or not the CA correctly considered the properties of Spouses Cruz answerable for the obligations of MSI.

HELD:

Yes.In finding the subject property answerable for the obligations of MSI, the CA characterized respondent spouses as stockholders of a close corporation who, as such, are liable for its debts.To be considered a close corporation, an entity must abide by the requirements laid out in Section 96 of the Corporation Code, which reads: Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock ofany class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least twothirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code.

Furthermore, we find that the CA seriously erred in portraying the import of Section 97 of the Corporation Code. Citing that provision, the CA concluded that "in a close corporation, the stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e. personally liable for corporate debts and obligations."

However, Section 97 of the Corporation Code only specifies that "the stockholders of the corporation shall be subject to all liabilities of directors." Nowhere in that provision do we find any inference that stockholders of a close corporation are automatically liable for corporate debts and obligations.